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Signs of Life: Real estate and construction

August 8th, 2009

Real estate and construction

Newly available mortgages and the rise of the middle class are fuelling a construction boom but, as ever, wealth is failing to reach the favelas

Nowhere is the gap between rich and poor in Brazil more graphically illustrated than in the favelas of Rio de Janeiro or São Paulo. Rural Brazilians in search of employment have flooded into the major cities over the past few decades, only to end up living in squalor. The shortfall in housing is now estimated at up to 10million homes.

Yet Brazil’s construction industry is booming. In São Paulo, it is impossible to find cranes to rent, complains Sérgio Newlands Freire, who heads the estate agency group Brasil Brokers.

Brasil Brokers is one of a number of real estate companies that have joined the IPO rush over the past year or so. Around a quarter of the record Brazilian stock offerings in 2006 came from the real estate sector, including house builders Gafisa and Cyrela, bringing much-needed foreign investment into the industry.

The growth of a new middle class, along with the introduction of long-term mortgages, previously unavailable, is expected to fuel a boom in housing construction. That will have a knock-on effect on employment in an industry that traditionally employs large numbers of unskilled workers. Many construction companies are starting to introduce training programmes for their workers.

In commercial property, emerging markets will continue to attract “healthy levels” of investment, according to the recent Rics global property survey.

“The emerging giants of Brazil, India, China and Russia now account for more than 50% of the world’s GDP, and have started to devour ever-increasing proportions of global property transaction activity,” the report says.

Investors eager to gain exposure to these booming markets have been “unfazed” by the volatility and economic weakness of financial systems, which so far have largely been confined to the developed world. Indeed, emerging economies such as Brazil are in better shape, according to Rics, as buffers of reserves have been built up on the back of rising oil prices and trade gains.

As well as attracting overseas interest, the new economic stability in Brazil has encouraged longer term investments. But the real estate industry still has a long way to go, says Jose Auriemo Neto, president of property development group JHSF.

“It’s a country in which there’s still a lot to be done,” he says. “It’s important that Brazil has a positive outlook and is able to gain the long-term trust of investors.”

Fiona Walsh

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